Once a European patent application has been granted, all patentees must then choose to validate the granted application in one or more European countries. Such a decision may have long-term business and legal consequences. Upon payment of the grant fees to the European Patent Office, patentees will be awarded a European patent. The European patent is unenforceable until it becomes validated in the selected countries of the European Patent Convention. Validation normally only requires the payment of applicable fees and the satisfaction of certain formalities. However, as a practical matter, very few patentees will incur the hefty cost of validating and maintaining a European patent in every single country. Here we present considerations for owners of biotechnology patents when weighing the costs, business, and legal implications of deciding where to validate in Europe.
Relative cost of validation
The costs of validating a traditional European patent are on a per country basis, and typically will include validation fees, translation costs (usually per-page), page fees (in some countries), and service fees by European counsel. Furthermore, once a patent is validated, the patentee must pay annuities in each country, which increase over the life of the patent. Below, for illustration purposes only, are some “ballpark” validation and annuity costs based on a moderate-length English language patent application (40 pages, 10 sheets of drawings, 15 claims) with 15 years of patent term remaining. These ballpark amounts are provided for illustration purposes only, and are based on a number of assumptions, such as size of application, time of filing, and currency exchange rates. Actual costs of validation will vary depending on these and other factors. The available countries for validation are the countries that were members of the European patent convention at the time the patent application was filed.
Thus, if an applicant was to validate this illustrative patent in all 37 available countries, the out-of-pocket cost would be $122,000, and the cost of annuities over the remaining 15 years of patent term would be another $614,000. Considering that annuities will increase over the life of the patent, it is not uncommon for applicants to initially cast a wide net, and validate in a relatively large number of countries. As the patent matures, and the commercial impact of the product becomes clearer, annuity costs can be pared down by maintaining the patent only in countries with key markets, while allowing the patent to lapse in other countries.
Market size is a frequently-cited consideration when selecting which countries for validation. In general, countries with large populations and strong purchasing power are attractive for cutting-edge biotechnology products. The following table shows population sizes and relative health care expenditures of the 38 European Patent Convention member states.
Depending on the type of product, the population size or per capita spending may be particularly informative of the market. For example, countries with high per capita health care spending may be more likely to adopt a state-of-the-art, cell-based therapy. Thus, a small country with high per capita spending on health care may be more attractive than a larger country that spends less on health care. On the other hand, for a next generation over-the-counter antacid formulation, for which purchasing power is a lower hurdle, large countries may be attractive markets even if their per capita health care spending is low.
Anecdotally, countries appearing on both of the “top 10” lists below tend to be among the most popular jurisdictions for validating biotech patents in Europe.
Additionally, in the biotechnology space, due to genetic, environmental, and other risk factors, certain indications can have higher incidences in certain populations. Thus, the decision on where to validate may be clearer for a drug that is directed to a rare genetic disorder associated with isolated populations.
Pharmaceutical industry considerations
Other factors, such as the business model, the nature of the product, and the type of protection provided by a patent claim, can also drive the decision on where to validate. For example, if an active ingredient claim will have very little remaining patent term, while the claims in a follow-on formulation case will have substantially longer patent term, it may make sense to focus resources on obtaining protection for the formulation in more countries.
For example, if a claim is directed to a method of making a biologic, countries with established pharmaceutical industries (where, theoretically, a competitor could perform the infringing manufacturing process) may be of particular interest. By way of example, several pharmaceutical companies that are headquartered in European Patent Convention countries are listed below.
While the upcoming implementation of European unitary patent (slated for early 2017) will bring further options to the table, traditional European patents will continue to coexist alongside the unitary patent, and the decision on where to obtain protection for a traditional European patent will remain relevant well into the foreseeable future. If validating in a small set of countries fits a patentee’s business goals better that validating throughout the European Union, a traditional European patent may remain a more cost-effective choice.
Since the validation of a traditional European patent is based on membership in the European Patent Convention, which is separate from the European Union, the Brexit, if implemented, will not impact the ability to validate in the United Kingdom. It is noted, however, patent protection in the United Kingdom will not be available from a unitary patent (which is based on European Union membership). Thus, Applicants wishing to maintain protection in the United Kingdom, which remains a substantial market, and a substantial hub for pharmaceutical companies, may still consider obtaining a traditional European patent and validating in the United Kingdom. Alternatively, an applicant may also directly file a patent application in the United Kingdom’s national patent office.
While validating patents in certain European countries will generally be popular among biotechnology applicants, there is no one-size-fits-all approach for deciding where to validate a traditional European patent. Instead, the decision on where to validate will require a thoughtful consideration of the type of protection afforded by the patent, the patentee’s business model, the patentee’s budgetary considerations, the target market, product life cycle, and the competitive landscape.